RESTRICTED  WORLD  TRADE  
ORGANIZATION  WT/TPR/S/185 
13 June 2007  
 
(07-2436) 
Trade Policy Review Body  
   
 
  
 
TRADE POLICY REVIEW 
 
Report by the Secretariat 
 
BAHRAIN 
 
  
 
This report, prepared for the second Trade Policy Review of Bahrain, has been 
drawn up by the WTO Secretariat on its own responsibility.  The Secretariat has, 
as required by the Agreement establishing the Trade Policy Review Mechanism 
(Annex 3 of the Marrakesh Agreement Establishing the World Trade 
Organization), sought clarification from Bahrain on its trade policies and 
practices. 
 
Any technical questions arising from this report may be addressed to Mr. 
Jacques Degbelo (tel:  022/739 5583), or Mr. Ricardo Barba (tel:  022/739 5088), 
or Mr. Samer Seif El Yazal (tel:  022/739 5459), or Mr. Carlos Perez del Castillo 
(tel:  022/739 5336). 
 
Document WT/TPR/G/185 contains the policy statement submitted by Bahrain. 
 
 
 
Note: This report is subject to restricted circ ulation and press embargo until the end of the first 
session of the meeting of the Trade Policy Review Body on Bahrain. Bahrain WT/TPR/S/185 
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CONTENTS 
 
  Page 
SUMMARY OBSERVATIONS vii 
 (1) T HE ECONOMIC ENVIRONMENT  vii 
 (2) I NSTITUTIONAL FRAMEWORK  vii 
 (3) T RADE POLICY INSTRUMENT  viii 
 (4) S ECTORAL POLICIES  ix 
 (5) T RADE POLICY AND TRADING PARTNERS  x 
I. ECONOMIC ENVIRONMENT 1 
 (1) M AJOR FEATURES OF THE ECONOMY  1 
 (2) R ECENT ECONOMIC DEVELOPMENTS  2 
 (3) T RADE PERFORMANCE AND INVESTMENT  4 
 (i) Trade in goods and services 4  (ii) Foreign direct investment 7 
 (4) O
UTLOOK  8 
II. TRADE AND INVESTMENT REGIMES 10 
 (1) T HE INSTITUTIONAL FRAMEWORK  10 
 (2) T RADE POLICY FORMULATION AND IMPLEMENTATION  11 
 (3) P OLICY OBJECTIVES  14 
 (4) T RADE AGREEMENTS  14 
 (i) WTO 14  (ii) Regional agreements 17 
 (iii) Bilateral agreements 18 
 (iv) Other preferential agreements 18 
 (5) I
NVESTMENT FRAMEWORK  19 
III. TRADE POLICIES AND PRACTICES BY MEASURE 22 
 (1) I NTRODUCTION  22 
 (2) M EASURES DIRECTLY AFFECTING IMPORTS  22 
 (i) Registration and documentation 22 
 (ii) Customs procedures and valuation 23  (iii) Rules of origin 24 
 (iv) Tariffs, other duties, and taxes 24 
 (v) Import prohibitions, restrictions, and licensing 28  (vi) Contingency trade remedies 30 
 (vii) Standards and other technical requirements 30 
 (viii) Government procurement 34  (ix) Local-content requirements 36 
 (x) Other measures 36 
 (3) M
EASURES DIRECTLY AFFECTING EXPORTS  36 
 (i) Registration and documentation 36 
 (ii) Export duties and taxes 36  (iii) Export prohibitions and restrictions 36 WT/TPR/S/185 Trade Policy Review 
Page iv 
 
 
  Page 
 (iv) Export subsidies, finance, insurance, and assistance 37 
 (v) Free zones 38 
 (4) M EASURES AFFECTING PRODUCTION AND TRADE  38 
 (i) Incentives 38 
 (ii) Competition policy and price controls 39 
 (iii) State-owned enterprises and privatization 39  (iv) Intellectual property rights 41 
IV. TRADE POLICIES BY SECTOR 47 
 (1) I
NTRODUCTION  47 
 (2) A GRICULTURE AND RELATED ACTIVITIES  47 
 (i) Main features 47 
 (ii) Agricultural policy 49  (iii) Fisheries 50 
 (3) M
INING , QUARRYING AND ENERGY  52 
 (i) Overview 52  (ii) Petroleum 54 
 (iii) Natural gas 56 
 (iv) Electricity 57 
 (4) M
ANUFACTURING  58 
 (i) Main features 58  (ii) Policy framework 58 
 (iii) Aluminium 59 
 (5) S
ERVICES  61 
 (i) Overview 61 
 (ii) Financial services 62 
 (iii) Telecommunications and postal services 68  (iv) Transport 72 
 (v) Tourism 76 
REFERENCES   79 
APPENDIX TABLES  83 
 Bahrain WT/TPR/S/185 
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CHARTS 
  Page 
 
I. ECONOMIC ENVIRONMENT 
I.1 Structure of merchandise trade, 1995-06 6 
 
III. TRADE POLICIES AND PRACTICES BY MEASURE 
III.1 Breakdown of applied MFN duties, 2007 25 
III.2 Tariff escalation by ISIC 2-digit industry, 2007 27 
 IV. TRADE POLICIES BY SECTOR 
IV.1 Bahrain's MFN tariff by ISIC classification, 2007 60 
  
TABLES 
 
I. ECONOMIC ENVIRONMENT 
I.1 Bahrain at a glance 1 
I.2 Selected economic indicators, 2000-06 3 
I.3 Balance of payments, 2000-06 5 
I.4 Foreign direct investment, 2000-06 7  
II. TRADE AND INVESTMENT REGIMES 
II.1 Main trade-related laws  in Bahrain, March 2007 13 
II.2 Bahrain's selected notifications to the WTO, as of March 2007 15 
II.3 Bilateral investment treaties, March 2007 21 
 III. TRADE POLICIES AND PRACTICES BY MEASURE 
III.1 Structure of MFN tariffs in Bahrain, 2002 and 2007 25 
III.2 Summary analysis of Bahrain MFN tariff, 2007 26 III.3 Prohibited imports, 2007 29 
III.4 Restricted imports, 2007 29 
III.5 Import controls, 2007 31 III.6 Government procurement, 2002-06 35 
III.7 Prohibited exports, 2007 36 
III.8 Restricted exports, 2007 37 III.9 Selected state-owned enterprises, 2007 40 
III.10 Summary of IPR legislation in Bahrain 42 
 
IV. TRADE POLICIES BY SECTOR 
IV.1 Livestock, poultry, and fisheries production, 1999-05 48 
IV.2 Vegetable crops production, 1999-05 49 
IV.3 Production, consumption and exports of oil, gas, and refined products, 2000-06 55 
IV.4 BANAGAS gas production and export, 1999-06 56 IV.5 Electricity tariffs, 2007 57 
IV.6 Structure of the banki ng system, December 2006 63 
IV.7 Selected telecommunication indicators, 2000-05 68 IV.8 Shipping and maritime transport services, 2000-05 72 
IV.9 Air transport serices, 2002-06 74 WT/TPR/S/185 Trade Policy Review 
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APPENDIX TABLES 
  Page 
 
I. ECONOMIC ENVIRONMENT 
AI.1 Structure of exports, including re-exports, 2000-06 85 
AI.2 Destinations of exports, including re-exports, 2000-06 86 
AI.3 Structure of imports, 2000-06 87 AI.4 Origins of imports, 2000-06 88 
 
III. TRADE POLICIES AND PRACTICES BY MEASURE 
AIII.1 Applied MFN tariff averages by HS2, 2007 89 
 
IV. TRADE POLICIES BY SECTOR 
AIV.1 Applied MFN tariffs by ISIC Rev.2 category, 2007 93 
AIV.2 Summary of Bahrain's specific commitments in services, 2007 96 
  
 Bahrain WT/TPR/S/185 
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SUMMARY OBSERVATIONS 
 (1) T
HE ECONOMIC ENVIRONMENT  
1. Since its first TPR in 2000, Bahrain's 
development strategy, together with high 
world oil prices, has resulted in an impressive economic performance. Its real GDP growth rate rose from an annual average of 4.8% during 1989-98 to 6.2% over 2000-06, while 
its annual average inflation rate was 
contained at 0.3%, on average, during 2000-04, before moving to 2.6% in 2005 and 2.1% in 2006, reflecting increased demand. Largely due to a significant surge in oil and gas earnings, the external current account has 
recorded surpluses since 2000, with the 
exception of 2002, peaking at an estimated 18.1% of GDP in 2006;  the overall public deficits of 3.9% of GDP in 2002 and 2% in 2003 turned into surpluses thereafter. 
Bahrain's external debt remains manageable, 
although it increased from 4.3% of GDP in 2000 to 9.9% of GDP in 2005. 
2.  Bahrain is endowed with smaller oil 
resources than its neighbours. Awareness of this situation and of the unfavourable 
agricultural conditions in the region has led 
Bahrain to adopt a development strategy that has made it one of the most diversified economies in the Gulf.  Based on, inter alia, skilled foreign labour, imported inputs, and 
incentives schemes, the diversification strategy 
has focused on oil refining, petrochemicals, aluminium and related downstream industries, ship repairing, and a major financial services subsector. Services contribute almost 75% to 
Bahrain's real GDP, and employ over 50% of 
the workforce. Manufacturing's share in Bahrain's real GDP is about 13%; the mining and quarrying sector (notably oil and gas) accounts for 12%, while agriculture contributes 0.6%. Nevertheless, despite 
Bahrain's diversification efforts, oil and gas 
account for around 70% of both government income and merchandise exports. Bahrain's average annual inflow of foreign direct investment (FDI) doubled from an average of 
US$458 million a year in the decade to 2000 
to an annual average of US$941 million over 2001-06, reaching US$2 ,915 million in 2006, 
partly due to its privatization programme. 
3. Bahrain has invested in health, 
education, infrastructure projects, and its 
Future Generation Fund was launched, in 
January 2007, to ensure inter-generational economic equity in the exploitation of its non-renewable natural wealth. Bahrain has been implementing measures to improve its 
investment climate, such as the creation of the 
one-stop shop, Bahrain Investors' Centre in July 2004 to facilitate the setting-up of business. However, foreign companies remain excluded from investing in certain activities (e.g. road transport of goods and passengers), 
and their ownership is limited in other sectors. 
Such restrictions contrast with the 70% share of foreigners in Bahrain's labour force. Bahrain's main economic and social problem seems to be its relatively high unemployment 
rate (14% of the local labour force), which is 
why employment is given priority in its economic policy. 
4. The Central Bank of Bahrain (CBB) 
was established on 7 September 2006, replacing the Bahrain Monetary Agency 
(BMA). The CBB carries out all the tasks 
previously undertaken by the BMA, but has wider enforcement powers. Pegged to the U.S. dollar since 2001, the Bahraini dinar, the national currency, has re mained fairly stable 
in real terms. Bahrain's high ratio of exports 
and imports in goods and services to GDP (129% on average during 2002-05) reflects the importance of trade to its economy. Its merchandise exports and imports are 
dominated by oil and gas products, while the 
origin and destination of its trade are relatively diversified. Bahrain is, increasingly, a net exporter of services, with a surplus averaging US$417.2 million per year over 2000-06 and peaking at US$696.7 million in 
2006; travel services is the main subsector 
(85% of the total services surplus in 2006). 
(2) I
NSTITUTIONAL FRAMEWORK  
5. Formulation and implementation of 
Bahrain's trade policy are the responsibility of WT/TPR/S/185 Trade Policy Review 
Page viii 
 
 
the Ministry of Industry and Commerce (MIC). 
Depending on the nature of the issue, the MIC consults with relevant ministries and other institutions that also take part directly or 
indirectly in foreign trade policy formulation 
and/or implementation, including the Economic Development Board.  The private sector provides, on an ad hoc basis, inputs to trade policy formulation through the 
Chambers of Commerce and Industry. The 
National Committee, created in 1996 under the supervision of the MIC, deals with WTO-related matters. 
6. Bahrain has been reviewing and 
amending its laws with a view to their 
conformity with Bahrain's WTO obligations.  
Several new laws have been introduced since its last TPR, including a revised Commercial Companies Law (2001), a trade remedies law covering anti-dumping, subsidies and 
countervailing, and safeguards measures, as 
well as other laws relating to telecommunications, patent and utility modes, trade marks, trade secrets, geographical indications, drawings and industrial designs, and integrated circuits. 
7. A Contracting Party to the GATT 
since 13 December 1993, Bahrain became a founding Member of the WTO on 1 January 1995.  Bahrain is neither a signatory nor an observer to any of the WTO's 
plurilateral agreements. It is a signatory to the 
WTO's Information Technology Agreement (ITA), and to the Fifth Protocol on financial 
services. Bahrain has not been involved in any dispute under the WTO Dispute Settlement 
Mechanism, either directly or as a third party. 
Bahrain grants at least MFN treatment to all its trading partners.  It has difficulties in 
meeting a number of the notifications required by certain WTO Agreements.   
8. Bahrain is a member of the Gulf 
Cooperation Council (GCC), and participates 
in the Greater Arab Free-Trade Area (GAFTA). In the context of the GCC, negotiations for trade agreements are continuing with, inter alia, the EC, EFTA, 
MERCOSUR, China, India, Japan, Pakistan, Singapore, and Turkey. Bahrain also has its 
own bilateral trade agreements, notably with the United States (into force since 1 August 2006). Bahrain became the first 
country in the region to have such a bilateral 
agreement, although th e other GCC members 
are also negotiating bilaterally with the United States. GCC Heads of States have agreed that any new preferential agreement 
concluded by a member would apply pari 
passu to all members,  except for agreements 
with the United States. 
(3) T
RADE POLICY INSTRUMENTS  
9. Bahrain has applied the GCC common 
external tariff (CET) since 1 January 2003.  
The adoption of the CET by Bahrain 
decreased its simple average applied MFN tariff from 7.7% in 2000 to 5.3% in 2007. All rates are ad valorem (except on tobacco), and there are no tariff quotas and no other duties 
and taxes on imports. Bahrain's exceptions to 
the GCC CET include alcohol (125%) and tobacco (subject to an alternate tariff, with an ad valorem component of 100%). On the basis of the WTO definition, tariffs average 7.4% in agriculture (down from 7.9% in 2000), and 
4.9% on non-agricultural products (7.7% in 
2000). Using ISIC (Revision 2) definition, the least tariff protected sector is agriculture with 3.3% (against 4.3% in 2000), followed by mining and quarrying (4.9%, down from 5.2% 
in 2000), and manufacturing (5.4%, 8% in 
2000). 
10. On aggregate, Bahrain's tariff displays 
positive escalation, from first-stage processed products, with an average tariff of 4%, to 
semi-finished goods, with an average rate of 
4.9%, and fully processed products, on which tariffs average 5.8%. Bahrain has bound 72.7% of its tariff lines (all agricultural goods and 67.3% of non-agricultural tariff lines) at rates ranging from 35% to 200%, i.e. an 
average bound rate of 35.6%; this leaves 
ample margins for applied tariff increases. It has never taken any anti-dumping, countervailing or safeguard actions. Duty concessions can be granted (including on a 
selective basis) as part of various investment Bahrain WT/TPR/S/185 
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incentives to, inter alia, encourage economic 
diversification and promot e exports. Extension 
of the scope of tariff binding commitments, reduction of bound rates, and further tariff 
rationalization in the light of the structure of 
the economy should introduce more predictability in the tariff regime, reduce the need for concessions, and ensure further integration of Bahrain into the multilateral 
trading system.  
11. The documentation for all imported 
products must be authenticated by the Consulate of Bahrain or any Arab Embassy in the country of origin. Bahrain encounters some difficulties, mainly technical, in 
implementing the provisions of the GCC 
customs law based on the WTO Agreement on Customs Valuation. Non-tariff measures are maintained on imports and exports, mainly for health, security and moral reasons. Bahrain 
has largely harmonized its regime on 
standards and technical regulations with other GCC members. 
12. In 2002, Bahrain adopted a new 
government procurement regime; it still provides for 10% and 5% price preferences 
for local and GCC products, respectively. 
Bahrain has no competition legislation per se.  It has adopted the prov isions on contingency 
trade remedies contained in the GCC Treaty. During the last few years, Bahrain has made 
significant progress in enforcing its TRIPS 
legislation. Nevertheless, software piracy, which has shifted from retail to end-user violations, has been reported as problematic. 
(4) S
ECTORAL POLICIES  
14. The services sector is a key component 
in Bahrain's overall policy of economic diversification; financial services, in particular, have developed strongly over the last few years, serving both the domestic economy and those of its neighbours. In 
July 2004, Bahrain liberalized its fixed and 
international telecommunication services. Foreign ownership is allowed in the majority of services subsectors. Nevertheless, provision of certain services, such as road and maritime transport, is restricted to Bahraini nationals. 
Under the General Agreement on Trade in Services (GATS), Bahrain scheduled commitments only in some financial services; 
it has no MFN exemptions under Article II of 
the GATS. In the ongoing services negotiations, Bahrain has tabled its revised conditional offer. 
15. The mining and quarrying sector, 
basically petroleum and natural gas, is 
dominated by several state-owned companies, notably BAPCO and BANAGAS. Bahrain's crude oil production has remained relatively stable over the past few years and reached about 67 million barrels in 2006. It is also a 
significant importer of crude petroleum, 
which, along with the local production, is destined mainly fo r its refinery. The 
Government is seeking to further develop its petroleum resources either directly or in 
cooperation with foreign enterprises through 
production-sharing agreements. Bahrain also is increasing its electricity network and upgrading the generation capacity in order to meet its growing demand. 
16. Bahrain's manufacturing sector is 
based on its apparent comparative advantage 
in energy-intensive i ndustries, particularly 
aluminium. Despite recent privatizations, the State continues to play a significant role in the sector. The Government holds a majority stake 
or is an important shareholder in some 
manufacturing companies, notably in ALBA, the main aluminium enterprise. Manufacturing is being promoted partly through investment incentives, including exemption from import 
duties, reduced electricity tariffs for investors 
in the sector, and a five-year grace period on rent payment for land in the industrial zones. 
17. Bahrain is implementing a 2004-15 
plan for sustainable agriculture development to improve production and raise productivity. 
The main agricultural constraints include a 
limited availability of good quality soils and 
water, and unfavourable climate. Bahrain is a net importer of agricultural products. The Government assists agricultural producers 
mainly by offering subsidies for a number of WT/TPR/S/185 Trade Policy Review 
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inputs, such as pesticides, veterinary drugs, 
machinery services, and irrigation material. Export prohibitions and restrictions apply to 
some agricultural products, such as live 
horses, camels, and palm tree offshoot. 
(5) T
RADE POLICY AND TRADING 
PARTNERS  
18. With a generally open and 
increasingly diversified economy, Bahrain is 
committed to the multilateral trading system, 
and it is actively participating in the Doha Development Agenda. Nonetheless, Bahrain needs to bring some elements of its trade regime more up to date and into greater conformity with WTO provisions. Continued 
reforms, including lifting the remaining 
impediments to FDI, the adoption of a competition policy, and further improvement of Bahrain's multilateral commitments, both on goods and services, could contribute to 
better resource allocation, and increase the 
predictability of its trade regime. 19. Increasingly, a key element in 
Bahrain's reform process relates to full economic integration under the GCC, including the planned establishment of the 
monetary union by 2010. Bahrain's 
membership in the GCC has contributed to GDP growth by improv ing competition in the 
economy, but has also detracted it from multilateral efforts, given the increased 
demand on its limited administrative and 
negotiating resources. Bahrain's future trade agreements, both at the GCC level and bilaterally, could further complicate this situation.  It is therefore important to consider the potentially greater advantages of further 
market opening on a multilateral basis. 
Trading partners could help by ensuring that their markets are fully open to goods and services of interest to Bahrain, and by providing more technical assistance.